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.. >> this week on "the communicators," a discussion about the collection of sales

tax on internet purchases. our guests are scott peterson of the streamlined sales tax governing board and jerry of the direct marketing association. >> host: well, one of the policy debates happening in washington and in state capitals around the united states is the issue of internet sales tax. that's our topic on "the communicators." we're joined by scott peterson of the streamlined sales tax governing board, he's the executive directer, and senior vice president for government affairs. gentlemen, thank you very much for being on "the communicators." >> guest: thank you. >> host: mr. peterson, if you would, tell us what the streamlined sales tax governing board is, and what's your position on taxing sales on the internet? >> guest: we are a nonprofit association of states, all the hebbs are state governments themselves who have two goals. the first goal is to make their

sales tax simpler and easier for retailers to administer, and the second is to get all the sales tax that's currently on the books collected. >> host: and what is direct marketing association? what's your position on the issue? >> guest: oh. our issue is it's not a tax issue, it's a collection issue. and how you collect the idea of the problem, the issue really stems -- what scott has -- it stems from out of state marketers, can they be forced to become sales tax collectors for a state they have no presence in? and the supreme court has said, no, because it's so complicated, it interferes with interstate commerce. and scott's group is trying to simplify -- is flying to similar -- trying to simplify that. so it's just a question of can a state force an out-of-state retailer to become their unpaid collection agent?

>> host: so your organization does not have a problem with taxing an amazon sale, for example? >> guest: no. the taxes are -- well, if you purchase in a state that collects sales tax, taxes are, in fact, owed. and that is, you know, we have to follow the law. that's the law of the land, that's where the state is, and the question is how is it collected and who collects it and so forth. >> host: mr. peterson, do you estimate that states are losing re knew because of -- revenue because of internet sales? >> guest: yes. internet and catalog sales. there's still an awful lot of catalog sales in the country. we estimate that the states will fail to collect $20 billion this year, and we're very concerned that with the really successful way that the internet has changed retailing that that number will get even larger in the future. we had our first billion dollar internet retail day on monday, and that's scaring my employers. >> host: well, also joining us

is grant gross, the washington correspondent for idg news service. mr. gross. >> host: hi. the streamlined sales tax groups have been trying to streamline their tax question for about a decade now and collect sales tax from internet retailers that don't reside in their states. why now? why push it now? it doesn't seem to have gained a lot of traction at least in congress. >> guest: i would agree with you. there hasn't been a lot of traction in congress, but some of that's because it's an odd issue for congress to deal with. >> host: how so? >> guest: well, we're asking congress to give states more authority. i mean, my employer, this is a states' rights issue. they want congress to grant them more rights than they have under the united states constitution today, which congress has the authority to do, and to get -- because it's tax related or it's the perception of tax related,

it's so polarizing. we are gaining traction. we have more than half the states that have sales tax are a member of the streamlines sales tax governing board. georgia becomes a member on january 1. we're actively working with the remaining states to change their law, make life easier for retailers, and we believe if we get more states, we'll have more traction in congress. >> host: it would amount, i mean, most people who buy online and, as you said, that practice is growing, more and more people are shopping online than ever before, they don't pay those sales tax to the states. when i buy off of ebay, i don't pay sales tax to my state for my ebay purchases, for example. it would, in essence, it's a tax increase even if it's an uncollected tax.

>> guest: yeah, thank you. i don't, we don't see it as a tax increase because you as a consumer have a legal requirement to pay the tax whether you're charged the tax by the retailer or not. >> host: maybe i shouldn't have said that. >> guest: well, you're not alone. the majority of people in this country have either a complete lack of understanding of how the sales tax works, or they think that this is an opportunity for them to save some of their taxes. they don't realize, you know, it is a crime shot to pay -- not to pay your use tax. while it's not one that's often enforced, it is one that is -- it's truly on the books. if you ask consumers if they think it's fair if the person that's on the corner store has to charge sales tax but the person in the other state behind the internet doesn't have to charge sales tax, the overwhelming majority of people say, no, that's not fair. they should both have to charge. >> host: but i think a lot of lawmakers in congress see it as

a quasitax increase and would have trouble voting for, to approve, approve the streamlined sales tax, correct? >> guest: i don't -- i haven't asked all of them. [laughter] i think my employers would like me to ask them all. but it's really just a states' rights issue. if you asked a member of congress do you think your state should have more authority than they have to do to govern what they do internally, they're all going to say, yes. then you have to get down to the specifics of, okay, well, this is one of the things we want them to have more authority to do. we understand that there are people that find the concept of taxation to be nerve-wracking, but that doesn't mean the services go away. all it means, if you don't -- if not everyone collects sales tax, all it means is that the poor person that owns the store gets to carry the entire burden.

>> host: jerry, is it unreasonable to ask online retailers to collect these taxes? >> guest: well, the supreme court has said, yes. the supreme court has said that it's a burden on interstate commerce because it is so complicated. and it still is so complicated. you know, there are 7,500 taxing jurisdictions in the united states. there were that many before scott's group started, and there are that many now and so forth. and what's defined as taxation has all changed. i think that the -- and the point is that these are out-of-state. it's not all internet sales that taxes aren't collected for. it is from a company that has no presence within the state so that they have no employees, no facilities in that state. they have no political power many that state -- in that state. they get none of the benefit from any of the schools, fire,

police, yet they're being asked to become unpaid tax collectors. and that is, we think, is not fair. we think that that puts a burden on them, an unfair burden on them. the taxes due in the states, states do other things to collect taxes from the internet and from catalog sales as well, from remote sales is probably a better way to say it. alabama just sent out a letter to everyone, and they received, i think, one-third of the people who received the letter sent back some statements. other states have things, lines on their income tax trying to -- there are ways to try for states to look at this rather than throw an expensionive burden upon -- expensive burden upon internet and and remote marketers. >> host: mr. peterson? what's your response to that?

>> guest: thank you. jerry's correct that the supreme court has said that states do not have the authority -- >> host: and that's the quill case from 992. >> guest: from '92. if you're doing business in the state and the concept of a physical presence doesn't really have the same meaning as it did back in 1992, or the first time they did the this in 1967. fedex and ups and what remains of the post office make conducting business in this country extremely easy. i mean, you don't have to own the merchandise you sell anymore. you don't have to own the web site that you sell from. you don't have to do almost anything to be a retailer today, and 25 years ago that wasn't the case. if you wanted to be a retailer in the united states 25 years ago, you had to buy a build, you had to buy inventory, keep people employed, and that's not the same now. i mean, there are companies who specialize in fulfillment. i can give you 5% of my sales,

and you will own my, all my inventory, you will be 100% responsible for shipping all my inventory. all i have to do is send sales to you, and you'll do everything else. you can sit in your office in downtown minneapolis and sell all over the united states and never leave your office, never actually even own the merchandise that you're selling. the world's changed, and we think that the tax obligation should follow the change. >> host: aren't there software packages now that would automate that sales tax collection? i imagine they cost a little money. >> guest: they do cost money, and some of them work, and they work to a certain extent, but think about it in the following way. you have to change your i.t., so the expenses are very high. the same issues that the supreme court raised in the quill case and before remain on the cost of trying to do business.

plus it's, they haven't eliminated the need for some audits. if you're going to believe what i have sent you and so forth, some states are going to want to audit, and they haven't -- so you have to get a tax department. in your business or wherever it is. so that's, that's a huge, a huge issue. you also have tax holidays. in florida there's a tax holiday at some point. i don't know when it was for hurricane preparedness, so you can buy some of those things online or from a catalog. so you have to know the dates of when you purchase, and you have things, you know, there are tax holidays, i think massachusetts has a tax holiday just before school, back to school, some states do that for certain items and others. that adds another complication to it, and states are constantly doing it. and i think in answer to scott from the point of view of it's

so easy to become a national or international marketer, it's probably time for the tax code to grow as well and be become, realize that things are changing. and they're starting. we don't think they've gone far enough. but i think that that's a key as well. i don't think the states should sit there and say, no, well, things have changed and so, therefore, businesses, you have to pile up all these extra expenses and get a tax department and tax lawyers to learn and worry about what you've collected and have you done the right collection, getting it off to the right place. and can the states not do anything to change this tax code that's based upon political boundaries which are becoming less and less relevant to an

extent in today's marketplace. >> host: but isn't it fair to to say that there are software packages out today that weren't there in 1992 when the supreme court made the decision? this it may still be a bit unwieldy to collect those taxes, but it's probably quite a bit less wieldy than it was in -- unwieldy than it was in '92. >> guest: yeah. i think the tax code taxes weren't there before, weren't there in '92, that's for sure. but there are a lot more marketers out there now, small marketers, entrepreneurs coming in trying to make seams. sales. i think that the burden is probably even greater even with the packages because there are so many more marketers. the world, the world has changed. and, you know, if we really, if you really simplified the sales tax, it would be a very

different discussion we have as we're talking about not the taxes, but the collection and how you collect it. >> host: but in most cases most of the proposals that i've seen settled limit on how small a business be has to collect taxes. so very small businesses -- >> guest: the real start-up would be exempt, and as you grow i a little bit, then you have to start it. but the level is not as low as you think. to try when you have new businesses coming in to the marketplace. >> host: this is c-span's "communicators" program. we're discussing sales tax on internet sales. our guests are scott peterson of the streamlined sales tax association and jerry cerasale of the direct marketing association. grant gross of idg news service is our guest reporter. mr. peterson, the state of texas recently sent amazon a bill. what was that about? >> guest: it's about a fulfillment center that amazon

has or an affiliate of amazon owns in the state of texas. and generally, it gets down to the physical presence test that the supreme court created. if you have a physical presence in the state, you have an obligation to collect sales tax. we have spent the last 40 years trying to figure out what physical presence means, and we've been to court a thousand times, i suppose, trying to figure that out. what, as i understand it and i have not talked to either texas or amazon, but as i understand it they have a distribution facility or they have an affiliate that has a distribution facility in texas that texas now believes creates a physical presence for amazon this that now -- because they have that presence there, amazon has an obligation to collect sales tax. and not, as i understand on a going forward basis, but texas wants to look back a little bit, too, and collect some of the tax they haven't been collecting. >> host: and it was a bill for

$269 million. >> guest: if not more. it was large. >> host: and what's the situation? what's the current status on that? >> guest: i think they're going to be in court. >> guest: yes. they will be in court. and it's really a question of -- it's a corporate question, corporate law question as to whether or not there is enough ownership or whatever in the fulfillment center and then does that create the nexus where tax is due, and the number is amazon hadn't been collecting and putting in the taxes, and if, in fact, they lose, there is that tax obligation which will come straight out of amazon because i purchased it a while pack, and you didn't -- back, and you didn't collect the taxes. i don't think amazon will try to collect the taxes from me. >> host: so what's your view on that issue? >> guest: it's a corporate law issue. if amazon has a presence in

texas, the law is pretty straightforward. there is an obligation for you because you're an in state retailer -- in-state retailer now, and you've received all the benefits that the taxes do that you have to become a tax collector for the state of texas, and you have to collect those taxes and remit the proper taxes to the department of revenue or whatever the exact title is in texas. >> host: one of the arguments recently against collecting sales taxes has been the economy and that right now the economy's sluggish. e-commerce is one of the areas that seems to be doing quite well, but you risk slowing that down if you start collecting these sales taxes. what would you say to that? >> guest: don't buy that argument. >> host: why not? >> guest: 90% of the households in this country have internet access, so the internet is no longer a baby, it is a very mature adult now.

in a very short period of time, it's become a mature adult. i don't know a sole that intentionally looks for places that don't charge them sales tax. and that may be true and it may simply be because i just don't know many people or i don't ask them -- i don't talk to many people about sales tax. nobody wants to talk about sales taxes. but i don't believe that having to collect sales tax is going to impact anybody' sales. now, you can make an argument that because i don't have to charge sales tax today that i have an advantage over someone else, and i know lots of main street retailers that think they're being disadvantaged. but if everybody had to collect, then the issue of whether or not there is a competitive advantage for one over another because of the sales tax, that goes away. and so everybody -- we'd be in exactly the same position. it's revenue neutral, effectively, and economically

neutral on all retailers because every retailer has the same burden. i don't believe it would harm the internet at all. frankly, i think it's going to make the internet better because a lot of these software packages that you talked about and jerry talked about are going to become more robust, and they're going to get cheaper as more and more people use themment the reason -- them. the reason it isn't widespread today is because having to collect isn't widespread. >> host: how small a business, in your view, should have to collect? >> guest: oddly, my employers two weeks ago set that at $500,000 in remote sales. and this is part of the main street fairness act, and our view is that if you make sales of -- remote sales of less than $500,000 in this country in a year, you would not be have an obligation to collect in any state other than where you already have an obligation to collect. >> host: so a guy who sells ten items on ebay -- >> guest: wouldn't be affected at all.

they would have no more impact than they have today. they have to collect sales tax in the states where they're making those sales. >> host: what is the main street fairness act, and what's your position on it? >> guest: it's authorization from congress to states giving them the ability to require out-of-state retailers to collect sales tax. we, the governing board wants the ability for their tax law to apply to everybody that's making sales inside their state. the main street fairness act includes lots of conditions, actually, on states. it only allows a state to have this authority if a state has done all the streamline simplification things. and while we all can disagree whether or not there's enough of those in there -- and i think it's a legitimate conversation -- you wouldn't be able to get that authority. so new york state which would today prefer to go to court to get that authority, they would not gain anything unless they

did all the uniformity things that are in the sales tax agreement. it would also grant to tribes, tribal governments have sales taxes around this country, and they would get the same authority. it would give retailers the ability to go to federal court on sales taxes which they don't have the authority to do today. it would require states to pay compensation to every retailer in the country which is something i don't think half the states today pay compensation to retailers. jerry used the phrase unpaid tax collectors, and half the states, a little more than half the states, they are unpaid tax collectors. this would be an obligation on every state to pay some compensation to retailers. not enough, but it would certainly be much more than many of them are getting today. >> guest: well, we oppose, we don't think it's -- we think it's congress granting the states a little bit too much

authority. one of the things that's an example, the streamlined sales tax board has not set what company be saying should be. compensation should be. but even going further, recently in an attempt to try to get the commonwealth of massachusetts to join, there is a -- they came up with a rule on how you figure out sales tax for items where the first $100 are free. and then you charge tax after that. massachusetts had a different way to calculate once you go over the $100 threshold than the streamlined sales tax board had agreed, and they gave an exemption to massachusetts. if congress passes the mainstream fairness act as it is now, the governing board can just change those rules without any input. congress would have lost that authority, and we don't think that just ceding that authority

to this governing board is the right way to go. let's get some really true simplification here and then that's something -- and we don't think that they have it. and i think scott and be i would disagree on it, but we agree that's where the discussion should be here. we also, i have to say one thing before -- we disagree that it's $20 billion. we've done some studies that show it's about 4-5 billion -- >> host: in lost revenue? >> guest: in lost revenue for states. research has said it's three billion across the country. and a lot of that stems from the fact that a huge amount of remote sales are business-to-business sales. some of them are pretaxed, they're wholesale type things, so there's no sales tax usually goes to that. others states really do audit businesses, so the taxes are collected. and an awful lot of retailers, e-commerce, is done by people who have physical stores within

the states, and they already collect because they're required to under the quill rubric. so that we think that the number, the amount lost is much lower. there isn't a pot of gold at the end of the rainbow. >> host: well, you know, we've referenced this case a couple of times now. very quickly, what is the quill v. north dakota case from 1992? >> guest: quill was a catalog sales, you know, similar to staples selling those types of things. and north dakota said you owe sales tax on what you sold to north dakota residents. they should have collected it, and you owe us the sales tax, and they went to the supreme court to try and receive it. now, the supreme court found and there was a case earlier, but basically, they found that this was, in fact, interstate commerce, and it was an interference of interstate commerce because of the burden that north dakota would place on

an out-of-state retailer, somebody who had no physical presence within the state. so they said you have to have a substantial presence. but the court did also say that congress has the authority or the power to grant the authority to the states to require out-of-state retailers to collect the sales tax which is why representative dela hunt introduced the main street fairness act and so forth. so i think that's my gist of it. scott can disagree -- >> guest: no. >> host: scott peterson, do you think we'll be seeing a supreme court case called amazon v. the state of texas at some point? >> guest: um be, you're going to see a -- you're going to see at least a federal court case with amazon v. somebody because they're in court right now with new york. they've been in court, they're in court right now with north carolina, they will be in court with texas. so at some point in time there will be an amazon v. some state

that gets, at least gets to a federal court level, yes. >> host: there have been several state attempts to try to collect these taxes in different ways, you mentioned north carolina, texas with amazon. colorado has tried to collect. wouldn't kind of streamlined sales tax method be performance bl to these individual state kind of attempts to do different things? >> guest: well, the states are trying to, other than colorado, the states are trying to define what is physical nexus. and -- physical presence, in essence, trying to push the boundaries and find out where the boundaries are. that's what the new york case is, that's what north carolina did, rhode island had done that. so those are all within the rubric of the quill decision. now, i think we'll see more of that, more attempts, and i think that other states are all

watching what happens in new york and in north carolina in the court cases to decide whether or not they want to take that, take that step with this affiliate tax in creating nexus. but in many states the marketers who have affiliates have just canceled those -- in rhode island they just canceled them. so in rhode island it probably is a loss, they had a tax loss doing this because they lost income to the state which people pay taxes on. in colorado it's a reporting requirement, so you have to report the names of everyone and the shipping addresses and be bills address -- billing addresses of everyone who purchased and had something sent into colorado. not really a tax collection, but a reporting requirement, so that's a different twist. >> host: but that would, i mean, talk about kind of cumbersome, that would seem like that would be fairly cumbersome, just as much as a